Question

Fully discuss the Threat of Entry in Porters Five Forces Model. How would you incorporate it into a Porter’s analysis of an industry?

Answer 1

The Threat of Entry in Porters Five Forces Model :

Definition of Threat of New Entrants :

• In Porters five forces, threat of new entrants refers to the threat new competitors pose to existing competitors in an industry. Therefore, a profitable industry will attract more competitors looking to achieve profits.
• If it is easy for these new entrants to enter the market – if entry barriers are low – then this poses a threat to the firms already competing in that market. More competition – or increased production capacity without concurrent increase in consumer demand – means less profit to go around. According to Porter’s 5 forces, threat of new entrants is one of the forces that shape the competitive structure of an industry. Thus, Porters threat of new entrants definition revolutionized the way people look at competition in an industry.

Threat of New Entrants Explanation :

• The threat of new entrants Porter created affects the competitive environment for the existing competitors and influences the ability of existing firms to achieve profitability. For example, a high threat of entry means new competitors are likely to be attracted to the profits of the industry and can enter the industry with ease.
• New competitors entering the marketplace can either threaten or decrease the market share and profitability of existing competitors and may result in changes to existing product quality or price levels. An example of the threat of new entrants porter devised exists in the graphic design industry: there are very low barriers to entry.
• A high threat of new entrance can both make an industry more competitive and decrease profit potential for existing competitors. On the other hand, a low threat of entry makes an industry less competitive and increases profit potential for the existing firms. New entrants are deterred by barriers to entry.

Threat of Entry Analysis :

• When analyzing a given industry, all of the aforementioned factors regarding the threat of new entrants may not apply. But some, if not many, certainly will. Of the factors that do apply, some may indicate a high threat of entry and some may indicate a low threat of entry. But, the results will not always be straightforward. Therefore it is necessary to consider the nuances of the analysis and the particular circumstances of the given firm and industry when using these data to evaluate the competitive structure and profit potential of a market.

High Threat of Entry of New Competitors When :

• Profitability does not require economies of scale
• Products are undifferentiated
• Brand names are not well-known
• Initial capital investment is low
• Consumer switching costs are low
• Accessing distribution channels is easy
• Location is not an issue
• Proprietary technology is not an issue
• Proprietary materials is not an issue
• Government policy is not an issue
• Expected retaliation of existing firms is not an issue

Threat of New Entry is Low if :

• Profitability requires economies of scale
• Products are differentiated
• Brand names are well-known
• Initial capital investment is high
• Consumer switching costs are high
• Accessing distribution channels is difficult
• Location is an issue
• Proprietary technology is an issue
• Proprietary materials is an issue
• Government policy is an issue
• Expected retaliation of existing firms is an issue

Synaptics Incorporated Porter Five (5) Forces Analysis for Technology Industry:

Threats of New Entrants :

New entrants in Application Software brings innovation, new ways of doing things and put pressure on Synaptics Incorporated through lower pricing strategy, reducing costs, and providing new value propositions to the customers. Synaptics Incorporated has to manage all these challenges and build effective barriers to safeguard its competitive edge.

How Synaptics Incorporated can tackle the Threats of New Entrants :

1. By innovating new products and services. New products not only brings new customers to the fold but also give old customer a reason to buy Synaptics Incorporated ‘s products.
2. By building economies of scale so that it can lower the fixed cost per unit.
3. Building capacities and spending money on research and development. New entrants are less likely to enter a dynamic industry where the established players such as Synaptics Incorporated keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry.

MARS INCORPORATED CASE STUDY ANALYSIS :

• Mars Incorporated has actually obtained a variety of companies that assisted it in diversity and growth of its item's profile. This is the detailed description of the Porter's design of five forces of Mars Incorporated Company, given up Exhibit B.

Competitiveness:

• There is severe competition in the industry of food and drinks. Mars Incorporated is among the leading company in this competitive market with a number of strong competitors like Unilever, Kraft foods and Group DANONE. Mars Incorporated is running well in this race for last 150 years. Each company has a definite share of market. This rivalry is not just restricted to the rate of the product however also for quality, innovation and variation. Every market is making every effort hard for the maintenance of their market share. However, the competition of other business with Mars Incorporated is quite high.

Bargaining Power of Suppliers :

• In the food and drink market, Mars Incorporated owes the biggest share of market needing greater number of supply chains. This triggers it to be an idyllic buyer for the providers. Any of the provider has never ever expressed any grumble about cost and the bargaining power is also low. In action, Mars Incorporated has likewise been worried for its suppliers as it believes in long-term relations.

Bargaining Power of Buyers :

• There is high bargaining power of the purchasers due to terrific competitors. Switching expense is quite low for the consumers as lots of companies sale a number of comparable items. This appears to be a terrific threat for any company. Therefore, Mars Incorporated makes certain to keep its clients satisfied. This has led Mars Incorporated to be among the devoted company in eyes of its purchasers.

Threat of Substitutes :

• There has actually been a fantastic hazard of alternatives as there are substitutes of some of the Nestlé's items such as boiled water and pasteurized milk. There has actually also been a claim that a few of its products are not safe to use resulting in the reduced sale. Thus, Mars Incorporated started highlighting the health benefits of its items to cope up with the replacements.